What is a Gold Bug?

"A genuine gold bug is a person who is emboldened by knowing that 4,000
years of continuous economic history proves that EVERY fiat currency has
failed, as they will always fail, and that gold will rise, just like it always
has..."

A guy wrote to John Nadler of Kitco and asked, "Who were some of the gold
bugs who were persisting in recommending gold bullion despite a two-month decline
that so far has taken more than $200 off the price of an ounce of the yellow
metal?"

Instantly, I knew that he was talking about me! Mostly because I never stopped
recommending gold and silver ever since the Federal Reserve started going freaking
bananas in creating excess money and credit in 1997, and are still doing it
today. So it's me he's asking about! Me!

I wave my hand excitedly in the air even more excitedly! I know the answer
to that one, too! A genuine gold bug is a person who is emboldened by knowing
that 4,000 years of continuous economic history proves that EVERY fiat currency
has failed, as they will always fail, and that gold will rise, just like it
always has, because people have always turned to it as a last resort against
losing everything that is still denominated in the depreciating currency! It's
a 100% guarantee! How can you NOT be bullish?

Again, Mr. Nadler ignores me, and says, "The best answer I could come up with
is that a gold bug is someone who will remain bullish on gold, come what may",
which he typifies with the anecdote about a newsletter editor who predicted
gold would rise when, instead, it fell in price. When "asked why gold had continued
to fall, despite persistent predictions that it would rise, this editor said
that it was the market, not he, that had been wrong."

That's right! The market was wrong! My theory is that if the market wasn't
consistently wrong, then prices would never change!

Well, apparently nobody is interested in my Stupid Economic Theories (SET),
but just look at when the price of gold was at about $750 an ounce, especially
since it was $20 an ounce at the beginning of the last century, for crying
out loud! Is there another freaking asset that you could have held that long
that rose as much, and while incurring no expenses or taxes whatsoever? No!

I know he sees me out here, waving my hand like some demented doll in a whirlwind,
and he knows that I also know that there is a concerted, coordinated effort
on the part of central banks, the International Monetary Fund, the Bank for
International Settlements and many others to restrain the price of gold, as
they have actually admitted over and over again, and thus the price of gold
is artificially low.

So that is probably why Mr. Nadler then said, "Part of that world is the possible
existence of conspiracies, including governments and central banks that might
want gold to decline. I don't necessarily disagree with that. But, in my opinion,
it should not be used as an excuse for an incorrect forecast." Hahaha!

I say, "Wow! This guy grades tough!" Stung, let me see if I have this right
so that I might learn from my mistakes; I know that people I don't know are
conspiring against my asset of choice with plans that are unknown to me, and
yet if I get bushwhacked by them, it's my fault?

You can tell he doesn't want to get into the "fault thing" or my appalling
lack of manners, and says that his opinion is such that "if you're looking
for an adviser who will tell you when to get in and out of gold, then that
adviser should be judged according to whether he was correctly anticipated
the rallies and declines."

At this, I wave my hand even more! I can tell you the answer to that, too!
You get into gold with a dollar-cost-averaging investment plan when excess
money and credit are steadily being created by the Federal Reserve, because
this extra money is going to cause inflation in prices, and gold always rises
as a traditional hedge against inflation because, well, it always has! Always!

And to finish answering the question, you think about getting OUT of gold,
years and years later, when interest rates are well into double digits, everything
has turned to crap, gold is selling at astronomic levels, and people run around
screaming, "That Rude And Disgusting Mogambo (RADM) was right! We're freaking
doomed to a horrible death by inflation in prices that comes after the horrifying
increases in money and credit! I wish I had some gold and silver now! And a
burrito would be nice, too!"

But again he ignores me, and says, "Several themes emerged that became telltale
signs of at least gold-bug-like tendencies. One is the notion that gold's fluctuations
don't really matter, since we ought to be investing in it as a long-term hedge
against currency devaluation."

Now I am waving my hand, because that is exactly right! Exactly!

"What I am looking for in an adviser," he says, not looking at me, "and what
I presume most investors are too, is someone who can accurately and objectively
assess the world as it is and, after taking all relevant factors into account,
make a profitable forecast about what is going to happen. Part of that world
is the possible existence of conspiracies, including governments and central
banks that might want gold to decline."

By this time I am bursting, and I shout, "That's me! I can tell you EXACTLY
what is going to happen 'after taking all relevant factors into account', because
what is going to happen is the same thing that ALWAYS happens when an idiot
government starts creating, or allows to be created, excess money and credit,
which is that the money in question will expand and expand, and end up with
zero purchasing power while gold, when priced in a currency that has no purchasing
power, soars to infinite levels when priced in that currency, and that is what
has always happened, anyway, and that is why I am 100% sure, dead-bang sure,
no-doubt-about-it sure, can't-miss sure that it will happen again!"

And not only that, but the statistics prove that making a profit by short-term
trading cannot really be done, especially by the overwhelming majority of those
that try, and those that do make a few bucks usually seem to be insiders somewhere.

In fact, accumulating gold bullion during a booming expansion of money and
credit using a dollar-cost-averaging buying program (where you buy gold with
a fixed percentage of your income on a regular monthly basis, which means that
you automatically buy more when it costs less and you buy less when it costs
more) will kick the living crap out of the accumulated gains of any trading
strategy you can name over the long term, just like it ALWAYS kicks the butt
of all the other trading strategies!

And when you add the money you save due to bullion's complete lack of any
additional expenses for "account fees", "customer fees", commissions and taxes
due on the short-term gains all along the way, there is no other investment
strategy that even comes close!

And betting with gold against a fiat currency in the hands of politicians
is the biggest no-brainer on the planet! Whee! This investing stuff is easy!

Richard Daughty (Mogambo Guru) is general partner and COO
for Smith Consultant Group, serving the financial and medical communities,
and the writer/publisher of the Mogambo Guru economic newsletter, an avocational
exercise to better heap disrespect on those who desperately deserve it. The
Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning, and other
fine publications.